Pittsburgh region enjoying lower energy costs

By John Portella

For The Almanac

writer@thealmanac.net

Jay Rupp of Whitehall is quite pleased with today’s lower gasoline prices. Rupp, who commutes to his job as a web designer at GNC Downtown, said that “saving a few dollars at the gas pump leaves more for holiday shopping.”

Those who live in the Pittsburgh region are in fact enjoying the lowest holiday gas prices in three years, 12 cents less than at the end of 2012. According to AAA’s Daily Fuel Gauge Report, the national average for regular self serve unleaded in the last week of December was $3.23 a gallon. Pittsburgh area prices are about a dime higher.

Lower fuel costs are partly the result of the weather. Late autumn snow and unseasonably cold temperatures have kept many drivers off the road, and cut back on gasoline usage.

There were other weather issues. Only one hurricane blew through the Gulf of Mexico in 2013, making it the slowest such storm season in three decades. The Gulf contains the world’s greatest concentration of oil refineries, and is particularly susceptible to hurricanes. The early cold snap also increased natural gas heating demand, and led to a 25 percent jump in the future’s cost of that fuel. Gasoline prices sometimes piggyback on the cost of natural gas, reflecting the increasing use of the latter as a motor fuel. Without the natural gas hike, gasoline prices might have fallen even further.

Another commonly cited factor in reduced gasoline prices is the falling cost of crude oil, from which motor fuel is made. New technologies such as horizontal drilling and hydraulic fracturing have opened up previously unreachable oil deposits in North Dakota and Southern Texas. In only five years, the huge Bakken Shale formation in South Dakota is producing one million barrels a day (mb/d) of sweet, low-sulfur crude oil, easily refined into gasoline. The Bakken oil field covers 15,000 square miles, the largest such facility in the United States. The Eagle Ford Shale deposit in South Texas is likewise producing one mb/d.

The flood of this oil reaching Gulf of Mexico refineries has focused attention on a relatively obscure new kind of petroleum – Louisiana Light Sweet – a blend that usually costs more than North Sea Brent, the European benchmark crude. Now, however, Louisiana Light sells for $102.42 a barrel, while Brent can be purchased on the International Petroleum Exchange in London for $111.88.

The London Brent price reflects worries about militia violence in Libya, a major African supplier of light oil to Europe. Quarrels among Libya’s 170 tribal and ethnic militias have closed that country’s eastern oil ports since July of 2013, resulting in the loss of one mb/d of Libyan oil exports and $7 billion in foregone income. On the positive side, the interim agreement on inspecting Iran’s nuclear facilities has lessened the threat to the 15 mb/d of oil traffic that passes through the Straits of Hormuz into the Indian Ocean.

New American output has somewhat insulated the U.S. from these supply problems. Analysts are predicting that America will overtake Saudi Arabia and Russia as the leading producer of oil and natural gas in the next few years. One bottleneck in this operation is the transport network to move these energy resources to market. Downward pressure on oil prices is expected to increase in January of 2014, as a new crude pipeline opens from Cushing, Okla., to Port Arthur, Texas, transporting 700,000 barrels of oil a day.

Overall, the investment bank Goldman Sachs forecasts that American and Canadian output will grow by 1.45 mb/d in 2014. According to Paul Sankey, a Deutsche Bank energy analyst, this means that the benchmark U.S. oil price for West Texas Intermediate, the most commonly traded U.S. oil, could fall as low as $80 a barrel on the New York Mercantile Exchange.